I went on the Today Programme this morning to talk about the new Mortgage Market Review Proposals. Flick your eye down the listand you'll be amazed at the idea that anyone has to tell banks this stuff. You would have thought it would be pretty obvious that it might not be a good idea to lend people hundreds of thousands of pounds without checking they have a repayment plan beyond waiting for house prices to rise and selling the house.
And you would have thought that all mortgage affordability checks would take into account the fact that interest rates might rise and house prices fall. Still ,the fact that these measures might be introduced now will make not the slightest bit of difference to today's mortgage market. Why? Because lenders have temporarily at least learnt their lesson. Their huge shortage of capital and new understanding of the risks inherent in their business means that they do all this stuff already: they only lend to people who they are almost certain will pay back and they cover themselves by leaving a hefty margin for error in the form of low loan to values.
Over the last 100 years we have become what our politicians wanted us to become a property owning democracy. In 1900, only 10% of homes were lived in by owner occupiers. The other 90% were privately rented. Social housing didn't exist. Now 70% of houses are owner occupied and the private rental market makes up a mere 16-17% of the total.
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How has this happened? It is partly down to political encouragement owning has been encouraged and renting discouraged by all sorts of policy fiddles. Things like the fact that you don't pay capital gains tax on your main home that has long made buying a very large house and hoping it goes up in price look like a better way to hang on to your financial purchasing power than to buy shares, hope they go up and then pay CGT on any gains (particularly when CGT was 40%). But all that aside, the main drivers have been a huge increase in the supply of homes (from 7m in 1900 to around 25m now); fast rising real incomes; and from the 1980s on the availability of seemingly endless credit to all.
This is where we come to the problem. Politicians don't think 70% is enough. They want more people to own their own homes (hence the endless fiddling about with mortgage indemnities, shared ownership and the like). But the three pillars that have supported such growth for 100 years have been kicked away. Real incomes are falling not rising. Credit is hard to get (and not that cheap either) and of course we can't bebuilding many new houses either. So more people aren't going to own their own homes. In fact the way we are going it might soon be that fewer people own their own homes. Why? Because one in five mortgage holders is in arrears despite record low interest rates.
With a bit of luck, a good amount of them will hang on to their homes. But many won't. Right now the banks are providing the most extraordinary level of forebearance to troubled borrowers but one day, everyone will have to face the truth. Make a bad loan and in the end you have to write it off. Make a bad loan in the housing market and in the end you have to turn an owner into a tenant.
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